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Comparing Investment Options: CDs, Stocks, and Bonds

Analyzing the advantages and disadvantages of investing in Certificates of Deposit (CDs), Stocks, and Bonds to determine the most lucrative investment vehicle.

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Comparing Investment Options: CDs, Stocks, and Bonds

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  1. EGR 403 - Project #2Group 1Dr. Rosenkrantz November 28, 2005 Investment Options Alex Camerino (Researcher) Juan Cervantes (Technical support) Kevin Curley (Operations Management) Eric Tseng (Summarizer)

  2. Overview Comparing three different investment alternatives: • CDs • Stocks • Bonds Determine the most lucrative investment vehicle from the three

  3. Scenario #1Certificates of Deposit (CDs) • A time deposit held in a bank with a fixed interest rate • Limited risk (FDIC insured) • Straightforward process • Relatively low rates • Illiquid

  4. Scenario #2Corporate Securities (Stocks) • A stock is a certificate of ownership in a corporation • Liquid • High potential for return • High maintenance • Higher risk • Unpredictable (Volatile) • Tax consequences

  5. Scenario #3Corporate Debt Certificates (Bonds ) • A certificate of debt issued to raise funds (Government or Private) • Predictable return • Decent interest rates • Most have fixed interest payments • Certain tax advantages • Affected by market (before maturity) • Potential high risk

  6. Analysis Criteria • Ten/twenty year time period • 2% Inflation, 3.78% MARR • $5000 Initial Investment • Analysis of a potential emergency at year four CDs • Washington Mutual • 10 year, 4% CD • Penalty of 2 years interest if withdrawn early

  7. Analysis Criteria (cont.) Stocks • American Century Blend • Future Worth based on historic rates • $12 Broker Commission Fee Bonds • General Motors • 10 year, 8.2% Bond • Bought at face value

  8. Graph of Annual Performance

  9. Future Worth Comparison Results

  10. What if an Unplanned Event Occurs? Health problem, Auto Accident, Law Problem

  11. Conclusion • Bonds and Stocks are more liquid (can be sold at market value), and are better in case of unforeseen circumstances • So which is really the best investment? Well, it depends…

  12. References • www.scottrade.com • finance.yahoo.com • www.fmsbonds.com • www.bigcharts.com

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